But that perception of safety in US government based debt assets will be short lived. As we noted in Predictions of a Mad Tin Foiler, and as Future Money Trends outlines above, confidence in the US dollar will quickly be replaced with panic as the United States itself is unable to service its debt and meet the social obligations of an evermore dependent and dilapidated citizenry.

Confidence will be lost.

Then, all hell breaks loose and we enter what we can only described as the Event Horizon, a scenario which is totally unpredictable as our existing paradigm of spending and consumption falls apart, being replaced with riots, violence, starvation and bloodshed and the likely deployment of the United States military as a state of emergency is declared in major metropolitan areas across the country

From Wikipedia: In general relativity, an event horizon is a boundary in spacetime beyond which events cannot affect an outside observer. In layman's terms it is defined as "the point of no return" i.e. the point at which the gravitational pull becomes so great as to make escape impossible.

and the likely deployment of the United States military as a state of emergency is declared in major metropolitan areas across the country

I have been retired from the Air Force for almost 25 years now. I was expecting this "event" to happen while I was in the Air Force, but it did not happen. I have no doubt, that possibly sometime in the relatively near future, it will. I do not think, however, this will be limited to major cities. It will go on everywhere. At that time, I wonder what the Russians, Chinese, North Koreans and Iranians will do?

4
posted on 07/22/2012 11:48:55 PM PDT
by Mark17
(California, where English is a foreign language)

Unfortunately, Will, as the sovereigns continue to erode, more economies will decouple from the dollar. Before their own book-cooking became known, China was (rather successfully) pushing to supplant the dollar with the Yen as the world standard.

Once the rest of the world recognizes that our dollar has no instrinsic value, it becomes worthless.

The negative bond offerings, the panting over the prospect of more QE, the wealth flight from one perceived economic "safe haven" to another...we're all just rearranging chairs on the deck of the Titanic.

When you have heavy weights like Dalio of Bridgewater, Bass from Hayman, Gross from PIMCO, Wolfeson (formerly of the World Bank), and half the banks in the EU talking about a long-wave contraction, it's a given.

A lot of folks point to the economic constraints that existed at the end of the Carter Presidency: high unemployment, high interest rates, a choking economy. Reagan was able to stimulate the economy out of it's malaise by pulling all the necessary levers; reduce interest rates to generate liquidity, deficit spending to prime the economic pump, and ease regulations to encourage enterprise.

Presently, we are stuck in the ZIRP (Zero Interest Rate Program) trap. Interest rates are at or near zero, but no liquidity, no movement. Deficit spending out the ying-yang. No movement. Bernake stated he won't move off the ZIRP until 2014 at a minimum; he can't - because it would cause the service payments on our massive national debt to skyrocket. Meanwhile, for savers experiencing pitiful returns on their accounts, the longer we are stuck in the ZIRP, the more their wealth is eroded against the pace of inflation.

(Inflation = Bond yeild - TIPS) or 1.6 -(-.62) for an inflation rate of 2.22, versus ROI on savings 0.56. So inflation is growing 1.7% faster than any interest you earn on your savings account.

We have passed the "tipping point" in debt-to-GDP, so each increase in the debt ceiling is causing a corresponding contraction in the private sector.

This is not a recession, but a long-wave contraction. It is not limited to one sector of one country's economy; it's global. EU banks are collapsing, and they have not recapped them.

Two countries so far have had a run on banks, as their economies crumble. More are to come, including some of the biggest players.

The reason the "prophets of doom" have been wrong is that they did not expect the governments to engage in massive rounds of QE or other extraordinary measures to prop up failing economies; then again, they did not take into account how readily countries would be sacrificed on the CDS altar.

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